Essays on investment in human capital

University dissertation from Stockholm : The Swedish Institute for Social Research, Stockholm University

Abstract: Heterogeneous On-the-job Training: Implications for the Specification and Estimation of the human Capital Earnings FunctionDespite the centrality of heterogeneous on-the-job training in human capital theory, this is rarely accounted for in the estimation. The empirical findings indicate that individual-specific components in the earnings function are stochastic. So, as long as information about on-the-job training is unavailable, the earnings function should be specified as a random-coefficients model. Moreover, the results show that the White heteroskedasticity-consistent estimator of the covariance matrix is preferable to other more complicated estimators. The standard errors obtained from this estimator are generally much larger than the OLS standard errors. The difference can be as large as 40 per cent.Omitted Ability Bias and the Wage Premium for Schooling: New Swedish EvidenceThere is extensive debate in the schooling literature about the failure to control for ability. This paper uses two new data sets that include various measures of ability, collected when the respondents were between 12 and 13 years old. The measures include scores from intelligence tests, achievement tests and school marks. In line with general opinion, the estimated wage premiums for education fall considerably when ability is controlled for. The average reduction in the return to imputed schooling is about 15 per cent, which is lower than comparable figures obtained in the U.S. Furthermore, the magnitude of the ability bias becomes only somewhat lower when I also account for measurement error in the schooling variable. I also find that measures associated with mathematics are the most important ones.Estimating the Return to Investments in Education: How useful is the Standard Mincer Equation?We examine how well the schooling coefficient in standard Mincer equations estimated on Swedish data for 1968, 1981, and 1991 approximates the marginal internal rate of return to education. We find three cases where inference from the estimated schooling coefficient is misleading. First, the decline in return to schooling from 1968 to 1981 is mainly concentrated to college education, whereas the return to high school education is stable. Second, the rate of return is sensitive to the assumption made about the length of working life, or the retirement decision. Third, both the schooling coefficient and the internal rate of return give misleading information about the value of adult education. By comparing the present value of lifetime earnings between youth and adult education, we find large differences in favor of youth education, even though the schooling coefficient and the internal rate of return are the same.Does Distance to a University Affect Enrollment Decisions? Evidence from Data on Three Cohorts of SwedesThis paper uses data on three cohorts of Swedes born in 1948, 1953, and 1967 to investigate whether geographical distance between the area of residence and the nearest university influences individuals decisions to enroll in higher education in Sweden. Models that do not control for differences in ability predict that persons who live far away from a university are less likely to enroll in higher education. Models that include results on intelligence tests, obtained when children were age 13, predict significant effects of geographical distance merely for individuals born in 1967. The results show that it is important to control for individual ability when modelling enrollment decisions to higher education. Also, the results suggest that previous estimates of the impact of distance are upward biased.

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